Q4 2023 Summary
Published Jan 16, 2025, 12:37 AM UTC- Unity has completed the first phase of its company reset, focusing on core businesses and resetting the cost structure, and expects revenue growth to accelerate in the second half of 2024 while maintaining and extending profitability.
- Unity is expanding into industries beyond gaming, which they believe can be a bigger business than gaming. With unique capabilities in real-time interactive 3D on lightweight devices like web browsers, iPads, and phones, Unity is the only player able to provide such solutions, opening vast opportunities in sectors like retail, industrial, and education/training.
- Unity has completed the integration with ironSource, integrated teams, and has plans to close competitive gaps, leading to expected growth in the back half of the year. They see themselves becoming a "Rule of 40" company as they exit the year and maintaining that for quite a while.
- Unity faces increased competitive pressure in its 'Grow' segment, with competitors reporting better performance and Unity acknowledging gaps that need to be addressed. This heightened competition could impact Unity's ability to grow its market share in this segment.
- The company is experiencing challenges in the Chinese market, with its 'Create' business in China being affected by market restrictions. This has continued to impact their growth in this important market, potentially limiting international expansion.
- The integration of ironSource has caused distractions and delays in Unity's feature development, leading to a lag behind competitors. Additionally, the departure of key executives from ironSource may indicate challenges in fully realizing the benefits of the acquisition.
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EBITDA Margin and Rule of 40 Target
Q: Can you clarify your EBITDA margin outlook and Rule of 40 goal?
A: We aim to be a Rule of 40 company by the end of the year, targeting an EBITDA margin of over 25% exiting the fourth quarter. We're driving margins and cost efficiencies hard, but never at the expense of growth. We see a clear path to achieving this balance. -
Competitive Environment and Closing Gaps
Q: How is the competitive landscape impacting your business?
A: We're experiencing more intense competition on the Grow side, with some competitors reporting better numbers. The integration with ironSource caused distractions, but now that it's complete, we have aggressive plans to close any gaps. We're investing in technology and data capabilities to enhance our offerings, meeting our customers' desire for multiple ad networks. -
Integration of ironSource and Impact
Q: Can you update us on the ironSource integration and its effects?
A: We've now fully integrated ironSource, consolidating teams and leadership to improve focus and efficiency. While the integration process caused some distraction and temporary competitive gaps, we believe the unified teams will drive growth. Some ironSource founders have stepped back, but remain engaged and supportive of Unity's success. -
Growth Reacceleration in Second Half
Q: What is driving expected growth acceleration in the second half?
A: Our growth acceleration is driven by innovation across all product lines, enhancing competitiveness in data, performance, and return on ad spending. The impact of runtime fees will not be meaningful. With the organizational reset behind us, we're less distracted and confident in reaccelerating growth in both games and industries. -
Industries Business Growth Potential
Q: How do you see the industries business compared to gaming?
A: We believe our industries business can surpass gaming over time. There's strong uptake in sectors like luxury retail, industrial visualization, and AR/VR training. Our technology enables real-time 3D experiences on lightweight devices, where we face little competition. We're focusing on software and partnering with firms like Capgemini to scale solutions. -
Recast 2023 Numbers After Portfolio Review
Q: Can you explain the adjustments to your 2023 numbers?
A: We had a one-time gain from Weta FX of $99 million in revenue and $102 million in EBITDA. Portfolio changes amounted to $283 million, mostly in Grow, including $15 million from Luna. Additionally, there were customer credits of $72 million in both revenue and EBITDA. The comparable base for 2023 is $1.7 billion in revenue and $274 million in EBITDA. -
Changes to Multiplayer Business
Q: What's the strategy behind changes to the Multiplayer business?
A: We're exiting the hardware component of our Multiplayer business, as it's unprofitable and not our strength. We're focusing on the orchestration layer, a profitable software business where we provide unique value in hosting multiplayer games. -
China Performance
Q: How did China perform, and what's the outlook?
A: In Create, China's growth has been challenging due to market restrictions affecting game development. However, in Grow, we're seeing good performance from business in China and Chinese customers operating globally, matching other regions' growth. -
Details on $72 Million Credits
Q: Can you clarify the $72 million in customer credits?
A: Before the merger, ironSource provided incentives to customers, with integration fees returned to us and recorded as revenue. The $72 million represents these fees, which we've transparently included in our Grow revenue tables for clarity. -
KPIs and Metrics Going Forward
Q: What KPIs will you provide going forward?
A: We'll continue sharing metrics like the percentage of business from industries, number of customers over $100,000, and the net expansion rate. Market share indicators, such as the percentage of top 1,000 games made with Unity, will also be provided to reflect community engagement. More metrics will be added as we progress.